Fewer able to afford homes, COAG finds

Housing has become less affordable despite the federal government pumping $1.3 billion annually into state and territory programs, the COAG Reform Council has found.

The council’s 2010-11 report on affordable housing to the Council of Australian Governments throws into question the effectiveness of rental assistance programs and incentives for first home buyers.

Around 45 per cent of the poorest households in capital cities, defined as the lowest 40 per cent by income, were paying more than 30 per cent of their income towards rent in 2009-10, the report says. This was up from 38.1 per cent of households in 2007-08.

Among the poorest 10 per cent of households, 60 per cent were in rental stress, defined as paying more than 30 per cent of their income towards rent.

The ability of lower income households to buy homes also declined between 2009-10 and 2010-11, the report found.

“In a lot of Australia, incomes are not rising rapidly, in fact they’re often pretty flat,” COAG Reform Council chairman Paul McClintock said. “Rents have moved up faster.”

“The money that is soaked into housing comes straight off your other discretionary expenses. It flows into retailing, and it has a lot of significance for entertainment and restaurants.”

NSW had the greatest level of rental stress in the country, with 47.6 per cent of lower income households in rental stress. Western Australia, South Australia, Tasmania and the ACT had levels of rental stress below the national average.

The ACT was the most affordable for low-income households while Queensland was the least affordable with only 2.7 per cent of homes sold considered affordable. NSW, Victoria and Western Australia were also severely unaffordable.

The report is the Reform Council’s third under the National Affordable Housing Agreement, where the Council of Australian Governments committed in November 2008 to providing affordable, safe and sustainable housing.

It finds there has been “no indication of progress” towards this outcome.

Mr McClintock said there was no evidence the billions of dollars states were spending to make housing more affordable was actually working.

“The ability of governments to impact general housing affordability is very limited,” Mr McClintock said. He said issues of economic management including the setting of interest rates and general income growth had a greater effect than specific housing programs like first home owners grants and rental assistance.

He said there was a need for new ways of monitoring government expenditure on these housing programs to ensure they were an effective use of money.

AMP chief economist Shane Oliver said Australian housing remained “way overvalued”. He cited OECD figures showing that the ratio of house prices to incomes in Australia was 28 per cent above its long-term average.

This meant the economy and banks were vulnerable to economic shocks.

House prices were unlikely to rise in real terms for “many years”, Dr Oliver said.

The Australian Financial Review

BY Ben Hurley

Ben writes about emerging companies, entrepreneurship and property for BRW.